'Servitisation': The next big disruption to Australian industries

Published on Fri, 31/10/2014, 04:01:44

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Following on from the shake-up caused by eCommerce to the retail industry, the next big disruption for Australian businesses will come from product companies becoming service companies, and service companies becoming product companies, says Zach Nelson CEO of NetSuite.

NetSuite is itself an example of this trend. It provides companies with cloud-based software to manage their operations, via a model known as software-as-a-service (SaaS), collaborating with businesses to provide a product under a subscription model rather than selling it outright.

Nelson said industries will start to be transformed by product and service companies playing on each other’s turf. For example, Uber has made what was once a service – catching a taxi – into a product; ordering an Uber.

It means value-adding to existing operations. Imagine Coca-Cola Amatil not only delivering truck loads of Mount Franklin bottled water to the supermarket, but also delivering and installing drinking fountains in the home. Or, Telstra selling not only internet packages and home phones but a full suite of internet-enable smart devices TVs, fridges, heating solutions.

Appliances Online is an example of this trend; the online appliance retailer sees itself as being driven by providing customers a service, not just providing them a product.

CEO of the Winning Group, John Winning said earlier this year that Appliances Online is that it is “a logistics company that happens to sell appliances.”

“Other retailers are more sales engines. They like selling and then it’s a bit of a headache to get it to the customer. What we do is we say that our job starts once we’ve got the order.”

Further, Winning Group’s installation business Handy Crew has been turned into a logistics company to provide delivery services to non-competing businesses. What they do well for themselves, they have been able to grow to scale and provide it as a service to other businesses.

Becoming a service-based business means rethinking the industry you are in and how to engage with consumers.

A study conducted by Frost and Sullivan and sponsored by NetSuite called ‘Disrupt, Collapse, Transform’ found the biggest trends driving industry change are digitalisation, new disruptive competitors, servitisation and new business models.

‘Servitisation’ applies to businesses “developing the capabilities they need to provide services and solutions that supplement their traditional product offerings”. Servitisation is much less developed in Australia than elsewhere in the world, the survey noted. In Australia, less than 30 per cent of manufacturers are servitised, compared to almost 60 per cent in the US and 50 per cent in Singapore. Manufacturing is the industry most affected by servitisation.

The top trend driving change across different industries in Australia is still digitalisation – the use of digital channels to do business, sell to customers, or transact with suppliers.

“Given industries are changing so quickly in such an unpredictable way, companies need to have the ability to adapt extremely quickly to launch new products and services, come up with new revenue or business models and access new geographical markets,” said Mark Dougan, managing director of Australia and New Zealand for Frost & Sullivan.

Dougan said that whilst servitisation is mainly a trend followed by manufacturers, some retailers are also following it. For example,  as well as physical products they are selling services such as extended warranties, installation and technical support as additional revenue streams.

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